Security concerns grow over sale of US battery maker to Chinese company

WASHINGTON – More than a decade of advanced American technology could be handed over to one of the country’s top economic rivals unless the government intervenes to stop the sale, lawmakers say.

The concerns surround the sale of A123 Systems -- a firm backed for years by U.S. taxpayers -- to a company run by a Chinese multi-millionaire with deep ties to the Chinese Communist Party. The move would essentially transfer sensitive battery technology with “key military applications," according to one group that is opposing the sale.

Renewed concerns come one day after President Obama in his inaugural speech spoke to the need to keep advanced technology here in the U.S.

“We cannot cede to other nations the technology that will power new jobs and new industries -- we must claim its promise,” he said.

If Obama wants to keep this word, his administration will have to block the sale to Wanxiang, Rep. Marsha Blackburn, R-Tenn., said.

“This is the first test for the Obama administration’s second term, and we will be watching closely to see if the president’s words are going to carry any weight,” Blackburn told FoxNews.com on Tuesday.

Under the economic stimulus program, the federal government in December 2009 gave A123 Systems $249 million. But the lithium ion battery manufacturer failed to turn a profit and filed for bankruptcy in October. It was bought at auction by Chinese-owned auto-parts company Wanxiang America Corp., after the company beat out a combined offer from Milwaukee-based Jonhson Controls Inc. and NEC Corp. of Japan.

The concern is that the U.S. is about 10 days away from losing a long-term tactical war over trade secrets and patents to China. If the sale goes through, the Chinese would have access to years of high-tech advancements.

At the helm of Wanxiang Group is auto-parts magnate Lu Guanqiu. One year ago he was the third richest man in the National People's Congress, and today he continues to have close ties with the Communist Party. That worries some lawmakers.

“Congress is seeing an increasing threat coming out of Beijing where they are methodically purchasing U.S. corporations,” Blackburn said. “The problem with the A123 sale is not only have taxpayers had a $230 million stake in the company’s success but Beijing will now have access to sensitive materials that are currently being used in U.S. defense and utility grid contracts.”

Blackburn said the sale wasn’t a partisan issue but a “clear-cut one of national security."

Originally developed by NASA’s Jet Propulsion Laboratories, the technology behind the ultra-light lithium-ion phosphate batteries being bought will play a major role in modernizing the way electricity is generated and distributed. The new tech could also be used in key military operations and to power satellites and unmanned military drones.

“This is exactly the science the president was talking about,” Dean Popps, co-chair of the Strategic Materials Advisory Council, said in a statement Monday. He added, “This highly sensitive technology should not be handed over to China. American taxpayers own this technology; we paid for it and, like the president said, we should claim its promise.”

But the battle over who gets the technology has taken a twist in recent weeks.

Before the deal is done, the Committee on Foreign Investment will need to sign off on it. The CFIUS, headed by outgoing Treasury Secretary Timothy Geithner, is in the process of reviewing the sale -- though since its creation, the CFIUS has been reluctant to intervene in similar sales. But as the pressure to stop the sale mounted over worries that giving up decades of scientific study could cripple the country’s ability to compete with China in the future, Wanxiang came up with a plan of its own.

The Chinese company created a new independent trust to buy A123’s civilian unit. The civilian arm makes up the bulk of the company’s operations. The idea would then be for Wanxiang to buy the business from the trust.

“This ‘trust’ mechanism shouldn’t fool anyone,” Popps said. “At the end of the sale, this technology will still be Chinese-owned.”

The company has said that splitting the sale between the military and government operations should quell security fears.

"We have worked closely with the Committee for Foreign Investment in the United States to address any potential national security concerns, and have taken action to exclude A123’s government and military business from our transaction with Wanxiang America Corporation," A123 Systems said in a statement to FoxNews.com.

After getting the go-ahead for the sale from a bankruptcy court in December 2012, A123 CEO Dave Vieau said the company would focus on CFIUS approval of the sale to Wanxiang, which "we are confident that we will receive given the structure of this transaction."

He added that the acquisition would provide A123 with the financial backing it needs to strengthen its "competitive position in the global vehicle electrification, grid energy store and other markets, and we look forward to completing the sale."